Fair Valuation of Assets Physical Assets Reconcile With Book and Fair Valuation of Assets At Discovery Research Foundation

(DRF) of Dr.Reddys Laboratories Ltd

In Partial Fulfillment of The Requirement for The Award of The Masters Degree in Business Administration.

Mohammed Abdul Raheem (Hall Ticket No:-3605123)

Academic Year:-2005-2007 Department of Business Management Nizam Institute of Business Management, Hill Top Colony, Khairatabad, Hyderabad.

Declaration I here by declare that the project entitled fair valuation of assets at Discovery Recovery Foundation (DRF) of Dr.Rddys Laboratories Ltd. Is an original work done by me and has been submitted to Department of Business Management, Osmania University in the partial fulfillment for the award of the Masters of Business Administeration.

This report has not been submitted else where for the award of any other degree or diploma

(MOHD ABDUL RAHEEM)

Acknowledgement
First and foremost I would like to thank Dr.Reddys laboratories Ltd. For giving me an opportunity to take up the project. It has been commendable experience to work with such an esteemed organization.

With immense pleasure I expect my heartfelt gratitude and obligation to Mr.Sampath Anand, Senior Finance Manager, for his stupendous guidance. His valuable ideas and suggestions were of great help to me in better understanding of the work and also giving a frame work for executing the project understanding.

I would like to render a heart full of thanks to Mr.Sirinivas , Mr.Nitesh ,Mrs Mangayamma and to all the people who are associated with my project for their cooperation. I sincerely thank Mrs. Katyaiyani, Principal of Nizam Institute Of Business Management for her able guidance continuous support and valuable suggestions which help in an in-depth understanding of the project work. Last but not least my sincere thank to all those who have help directly or indirectly making this project a success.

PROFILE OF THE COMPANY

As every new day unfolds, they begin their search for meaningful answers. After all their business is about creating healthcare solutions that make peoples lives Healthier and happier. Moreover, once they find an answer, they dont stop. For there are other discoveries to be made, again it is to ask more questions. It was a pioneering spirit that made their founder. DR. Anji Reddy, set up Dr Reddys Group in 1984. Very soon, they evolved into a large pharma house acknowledged for manufacturing innovative and affordable life-saving drugs. Then came a time for them to expand their base and consolidate. The acquisitaion of American Remedies Ltd., and the merger of their group company, Cheminor Drugs, gave them the critical mass of capabilities and resources to become globally competitive. Now, their competencies cover the entire pharmaceutical chain basic research, finished dosages, generics, bulk actives, biotechnology and diagnostics. Today, they are one of the Indias premier pharmaceutical companies and even they enjoy a leadership status in therapeutic areas.

Their discovery pipeline has a depth and breadth that few can rival. So far, they have filled for many patents, and to their credit, many have been granted. In fact, they are the first Indian company to out-licence a molecule for clinical trails to an MNC, Nova Nordisk the world leader in Diabeties.

They are exporting bulk actives, branded formulations and generics formulations to more than sixty counties. Their inherent strength has always been in identifying relevant bulk drugs, and formulations, and selling them at affordable prices across the world. For them, quality audits are a norm from start to finish. They have accreditations from all premier international regulatory authorities for all three of their finished dosages plants. Also, all six of their bulk activities manufacturing plants are USFDA approved. And their success in getting ANDA and Dossier approvals, in the highly competitive generics markets, is another reflection of their product quality. They have implemented the quality, on-time delivery and pricing. It provides vital decision-making support with on-line availability of information, reduces lead and response times, and facilities transparency in the entire system. The just-in-time (JIT) system had also been adopted for packaging components. Thus, they constantly raise health standards through continuous innovation and cross-functional integration. They are determined to put the smile of satisfaction on the lips of people the world over.

At Dr. Reddys, the atmosphere is highly charged. People are continuously motivated to excel. They have a variety of programmes to encourage both personnel and professional growth. For instance, the management development programme is on initiative to identify, motivate and develop high performers. The programme chalks out the career path of individuals and provides them the

opportunities to move into leadership positions. Ankur, their learning center, is a base for knowledge management and self-development. As a way of life, people are encouraged to innovate, experiment and take risks. They share knowledge by learning and passing information. Their open-house sessions serve as a platform for people to voice their views and opinions. Above all, everyone is given the scope to work at what they aspire for. They are committed to preserving the environment by adopting eco-friendly manufacturing process coupled with the latest waste handling systems. As a good corporate citizen, they also believe in making the quality of peoples lives better. The Company pursues social responsibility under the aegis of the Dr. Reddys Foundation for Human and Social Development. They want to be first Indian pharmaceutical company to entrench themselves globally by successfully, taking their products from discovery to commercial launch. And it is drug discoveries that will leas them in to ranks of global pharmaceutical majors. Applications of IT, improvements in operation through initiatives in the supply chain, and knowledge management give them the cutting edge. Apart from that, they will constantly leverage their internal capabilities in the area of product innovation and thus, surge ahead. They believe in carrying their banner of hope across the world.

DR. REDDYS STRATEGIC BUSINESS UNITS (SBUS) The Strategic Business Units of Dr. Reddys are divided into revenue earnings units and non- revenue earning units. The non-revenue earning unit is:

Discovery research Moreover, the revenue earning units are: Active Pharmaceuticals ingredients (APIs) or bulk activities Branded formulations, Generics, Emerging Businesses, and Custom Chemical Services or CCS.

Discovery Research

Dr.Reddys drug discovery program is at the heart of its vision to be global. Discovery led major. With 260 scientists focused exclusively on discovery research. 23 patents. And a malecule pipeline, it has built an array of discovery skills. The Research Foundation in India has world-class chemistry and strong pharmacology skills. Its Atlanta, USA lab focuses on early stage research skills, like target identification and high throughput screening. Aurigene, a discovery services unit, adds automated medicinal chemistry and structure- based drug design to the mix.

APIS

DR.Reddys API division is a proven manufacturer of bulk activities. The Bulk actives business caters to the needs of both Innovators and Generic Formulators world wide. At Dr.Reddys they manufacture about 00 bulk actives and several key intermediates. All six of its manufacturing facilities are CGMP approved and USFDA (United states food and Drug Administration) inspected. Their expertise in organic synthesis, process development and a controlled supply chain enables them to provide us with high quality Bulk Actives at competitive prices. They are aggressively building their product portfolio to cater to the generic players in emerging markets. Today, its emphasis is on building profitable revenue from exports to regulated markets like USA and Western Europe. The APIs are Ciprofloxacin

Nizatidine, Ibuprofen, Sparfloxacin.

Ranitidine Fm 1.

Naproxen

Sodium.

Dcxtromcthorphan. Ranitidine Hcl, Enrofloxacin. Doxazosin Mesylate, etc. Branded Formulations Dr Reddy's has a leading presence in India and the world market for value-added branded finished dosages. They have, over the years, acquired a strong reputation for their quality branded formulations. Here, their integrated R&D facility and ability to scale-up production, while following exacting international quality standards, gives them the edge. Their state-of-the-art R&D facilities develop formulations and prepare bio-batches and finished dosages in line with global regulatory requirements. This has helped them carve a niche for themselves in the world market. Dr Reddy's International Operations span Asia, Africa and Latin America. With the help of their joint ventures, they have become one of the leading Indian pharmaceutical companies in Russia. CIS Countries, Latin America, Africa and China. They have also made a foray into developing markets like Myanmar. Sri Lanka. Vietnam. Kenya. Trinidad and Malaysia, amongst others. Brazil and China are their focus markets in this millennium. India's top 10 brands are Nise. Omez. Stamlo, Ciprolet, Enam, Stamlo Beta. Antoxid, BIO E, Reclide, GLA, etc. The therapeutic segments include Cardiovascular, Pain management, Gastro-intestinal, Anti-infective. Specialty and Naturals. Generics

The generics business gives Dr. Reddy's a direct presence in first world markets. It has always had an export focus and has grown aggressively on the back of a slew of profitable products, successfully clearing inspections by USFDA, MCC and the MCA. Its path to value has taken the high risk, high return route, with a series of patent challenge products. Its current focus is to innovate and build both technological and commercial skills to build capabilities for specialty products. Emerging Business Critical Care Division: Launched in 1998. in the Critical Care Division (CCD), their vision is to create a strong base in specialty segments for a sustainable longterm competitive advantage. To meet this objective, opportunities and issues have been identified and strategies formulated to exploit the opportunities. Currently, the CCD deals with high value low volume oncology products. The Oncology market is a fast growing segment, with more and more players vying for a share of this pie. There are 22 players in the Indian Oncology market. In a short span of four years, the division has achieved a leading position in the oncology segment. The accelerated growth comes from its ability to face challenges and achieve a paradigm shift. CCD has set new standards through innovative product presentations, focused customer approach and customised patient service. Biotechnology: Biotechnology division was set up in 1998 with a mission to develop a totally indigenous bio-generics technology platform that can offer Indian consumers generic versions of imported therapeutic recombinant proteins

at affordable prices. Dr.Reddy's Biotechnology division deals with therapeutics, vaccines and diagnostics. Molecular biology, cell culture, fermentation, downstream processing and hybridoma technology are the focus areas. This is the first company in India to develop a molecule GRASTIM (generic name: filgrastim), the human Granulocyte Colony Stimulating Factor (hG-CSF), is a recombinant protein used in chemotherapy-induced neutropenia and in bone marrow transplantation. Custom Chemical Services SBU Custom Chemical Services (CCS) provides services in Custom Synthesis, Contract Manufacture and Supply of Key Intermediates. The objective CCS is be the preferred partner for innovator companies and providing a complete range of chemical services that are necessary to take innovations to the market speedily and more efficiently. The focus of this business unit is to leverage on skills in process development, analytical development and cGMP manufacture to cater to various needs of innovator companies. CCS has a competent team comprising research scientists, organic chemists, process engineers and project coordinators dedicated to offering customised solutions to the customer's needs, from the preclinical stage until commercialisation. Feasibility responses are provided promptly ensuring that the customer is given rapid feedback on enquiries. An extension of the process development facilities and services, Technology Development Centre (TDC) at Miyapur, is a part of the Custom Chemical Services, an independent business unit of Dr. Reddy's Group. The

centre has well-resourced synthetic organic chemists laboratories to cater to the needs of Dr.Reddy's molecules, Contract Research and Custom Synthesis for innovator companies.

SAFETY, HEALTH AND ENVIRONMENT

At Dr. Reddy's, Safety, Health and Environment is an integral part of the business. Commitment to environmentally appropriate behaviour is an important part of its values. This commitment is expressed in Safety. Health and Environment (SHE) Policy, which aims to protect the environment in which they operate and to ensure health and safety of its employees, contractors, visitors and the community. Over the years. Dr. Reddy's SHE practices have evolved from an end-of-pipe approach - treating generated waste - to one that attempts to minimise pollutants at the source. The SHE management now emphasises three kinds of responses: Avoid, Minimise and Threat. The most preferred response is to avoid the generation of waste by better processes; then to minimise the impact on environment, wherever possible, through process modifications and lastly to treat whatever is the residual impact.

DR. REDDY'S FOUNDATION

The Dr. Reddy's Foundation was started in 1996 as an innovative experiment in poverty alleviation, targeted at economically vulnerable children, youth and women who run households. The Foundation has grown impressively, in terms of its development philosophy, financial size and impact. It has become an effective agent of Dr. Reddy' social commitment and its sound operational

principles have attracted support from the best of the national and worldwide development organisations -CRY, UNICEF, UNDP-USAID, Plan International and the Aga Khan Foundation-European Commission. Programs The CAP, or Child and Police Project: - CAP reaches 4250 children; it brings together citizens, the City Police, corporates and policy makers with an aim to rehabilitate child workers by turning them into students.

LABS (Livelihood Advancement Business School): LABS

aims

to

help

economically disadvantaged youth enter the competitive job market. Youth from the poorest sections are identified and given skills and thus the potential to earn both steady income and dignity. Clothes Bank: - Clothes Bank aims to promote the culture of simple giving among citizens, corporates and the growing affluent middle class through the medium of used clothes. Projects Genetic Disease Management-New Born Screening: - Dr. Reddy's Foundation for Human and Social Development (DRF-HSD) is the country's first NGO to support the New Born Screening Program at the Center for DNA Fingerprinting and Diagnostics in Hyderabad. The main objectives being to prevent mental disability by early detection and intervention common congenial metabolic defects.

Roshni: - Roshni, a support group for the depressed and suicidal was born in 1997. The members aim to reach out through its networking and new centres and generate community involvement to fight the conditions that lead to suicidal behaviour which affects the individual, families and the community at large.

MILESTONES
1984 Established with initial capital of Rs. 25 lakhs. 1986 Enters international market with exports of Methyldopa. 1987 Obtains its fret USFDA approval for Jbuprofen. 1990 For the first time in India new molecules, Norfloxacin and Ciprofloxacin. are exported to Europe and the Far East. 1993 Dr. operational. 1994 Makes GDR issue of US$ 48 million; Foundation stone laid for a generic formulations facility to cater to highly regulated markets. 1995 Sets up a subsidiary in Hong Kong and a JV in Russia Group company Standard Equity Fund merges with Dr. Reddy's. 1997 Licenses anti-diabetic molecule, DRF-2593. to Novo Nordisk for clinical trials in return for upfront payments, milestones payments and royalties. 1998 Licenses anti-diabetic molecule. DRF-2725. to Novo Nordisk for clinical trials in return for upfront payments, milestones payments and royalties. 1999 Acquires Chennai based American Remedies Ltd. 2000 Becomes India's third largest pharmaceutical company with he merger of Cheminor Drugs Ltd. and the acquisition of American Remedies Ltd. 2001 Dr. Reddy's lists on the New York Stock Exchange - the first Asia Pacific pharmaceutical company, outside Japan, to do so. 2002 The first overseas acquisition of BMS Laboratories Limited and Meridian Health Care, UK. Reddy's Research Foundation is established and becomes

2003 Announces a 15 year exclusive product development and marucling agreement for OTC drugs with leiner. 2004 Acquires access to Drug Delivery Technology Platforms in the Dermatology segment through the acquisition of Trigenesis 2005 Acquires Roche's API Business at the state-of-the-art manufacturing site in Mexico with a total investment of USD 59 million. Announces the formation of Perlecan Pharma: Indias First Integrated Drug Development Company. Announces India's first major co-development and commercialization deal for it's molecule Balaglitazone (DRF 2593), with Rheoscience. Announces a unique partnership for the commercialization of ANDAs with ICICI Venture. 2006 Becomes an Authorized Generic Partner for Mercks Proscar & Zocor in the US market during 180 day exclusivity period. Acquires betapharm- the fourth-largest generics company in Germany for a total enterprise value of 480 million.

INTRODUCTION TO THE STUDY

NEED OF THE STUDY

Discovery Research Foundation Which is Register under companies act 1956 under section 25, as a non profitable company, it is not carrying its own research, but supporting indirectly. it proposes to sale of its assests at a fair value to an organization that carries out on research.

The assests have been procure since 1993 and active research stops in 2002.

The need was to identify at what value the assets may be sold using principles of fair valuation

OBJECTIVES Physical Assets Reconcile with books.

Fair valuation of Assets.

SCOPE STUDY ON PRINCIPLES OF FAIR VALUE. PHYSICAL VERIFICATION PROGRAMME SUPPORT TO DISCOVERY RESEARCH FOUNDATION. RECONCILATION OF PHYSICAL ASSESTS WITH RECORDS. CALCULATION OF FAIR VALUES BASED ON FAIR VALUATION METHODOLOGY.

LIMITATIONS SOMETIMES QUOTED PRICES MIGHT NOT REPRESENT THE BEST ESTIMATE OF FAIR VALUES ACTUAL BALANCE USEFUL LIFE CANNOT BE ASSERTAINED BASED ON DRFS SCIENTISTS ESTIMATEIONS. MARKET PRICES OFTEN DIVERGES FROM FAIR VALUES BECAUSE OF VARIOUS COMMON CONGNITIVE BIASES AMONG BUYERS OR SELLERS.

LITTRATURE ON FAIR VALUATION

Definitions A classic formulation of the definition of "fair market value" is found (in the specific context of U.S. tax law) in the United States Supreme Court decision in the Cartwright case: The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.[1] There are numerous definitions of fair market value for various purposes and jurisdictions. A highly general definition follows.

It is the most probable price at which a good or service will exchange, expressed in terms of cash or equivalent, in a free market assuming:
o

A knowledgeable and willing seller unencumbered by undue pressure to sell and acting in his own best interest

A knowledgeable and willing buyer unencumbered by undue pressure to buy and acting in his own best interest

A reasonable time for exposure in a free and open market

Under this concept, a real estate sale in lieu of an eminent domain taking would not be considered a fair market transaction since one of the parties (i.e., the seller) was under undue pressure to enter into the transaction. Other examples of sales that would not meet the test of fair market value include a liquidation sale, deed in lieu of foreclosure, distressed sale, and similar types of transactions. Proving fair market value Fair market value is generally proved by expert evidence, although for commonly traded goods (such as new retail goods or securities) a court can take judicial notice of the price. Often, the fair market value is based on a date prior to the hearing that would establish damages, such as the date the property was destroyed, or the date of a separation when assessing the value of matrimonial property that is sold at a later date. For example, if a used car is destroyed in a crash, the insurance policy will generally only pay for the fair market value of the car at the time of the accident. This can generally be determined by looking at Kelley Blue Book values, or the costs of buying similar vehicles being sold by used car dealers in the local area. Generally, the less liquid and more unique a piece of property is, the harder it is to accurately determine its fair market value. For example, farm land is generally treated as a commodity and its fair market value can be determined with relative ease by comparing the sale prices of neighbouring properties. However, the fair market value of a unique property, such as the Empire State Building, would be

difficult to determine as even other New York skyscrapers are rarely if ever sold on the open market. Practical applications of the fair market value concept Property taxation systems such as Market Value Assessment are generally based on the fair market value of the property. Online tools can help anyone estimate the fair market value for property providing informtation such as nearby recently sold residential property, neighborhood, average prices, average price per square foot, property appreciation and display individual property locations on Zillow. Alternative pricing schemes, particularly for commercial properties, are Replacement Value, or what it would cost to re-build the building that exists on the site, or Commercial Value, based on the assumed rental income and the rate of return on capital investment for similar properties. These values can often give wildly different estimates than a fair market value approach. The estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies. 2. In the futures market, fair value is the equilibrium price for a futures contract. This is equal to the spot price after taking into account compounded interest (and dividends lost because the investor owns the futures contract rather than the physical stocks) over a certain period of time.

2. The "fair value" quoted on TV refers to the relationship between the futures contract on a market index and the actual value of the index. If the futures are above fair value then traders are betting the market index will go higher, the opposite is true if futures are below fair value.

Fair value, also called fair price, is a concept used in finance and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such factors as:

relative scarcity perceived utility (economist's term for subjective value based on personal needs)

potential risk/return characteristics (i.e., for a tradable asset) replacement costs, or costs of close substitutes production/distribution costs, including a cost of capital Fair value vs market price

There are two schools of thought about the relation between the market price and fair value in any kind of market, but especially with regards to tradable assets:

The efficient market hypothesis asserts that, in a well organized, reasonably transparent market, the market price is generally equal to or

close to the fair value, as investors react quickly to incorporate new information about relative scarcity, utility, or potential returns in their bids; see also Rational pricing.

Behavioral finance asserts that the market price often diverges from fair value because of various, common cognitive biases among buyers or sellers. However, even proponents of behavioral finance generally acknowledge that behavioral anomalies that may cause such a divergence often do so in ways that are unpredictable, chaotic, or otherwise difficult to capture in a sustainably profitable trading strategy, especially when accounting for transaction costs. Fair Value Measurements (US markets): Exposure Draft

The Financial Accounting Standards Board (FASB) issued Exposure Draft 1201100 on June 23, 2004, to provide proposed guidance about how entities should determine fair value estimations for financial reporting purposes. The draft would apply broadly to financial and nonfinancial assets and liabilities measured at fair value under other authoritative accounting pronouncements. Absence of one single consistent framework for applying fair value measurements and developing a reliable estimate of a fair value in the absence of quoted prices has created inconsistencies and incomparability. The purpose of this exposure draft is to eliminate the inconsistencies by developing a solid framework to be used in any fair value measurements.

The draft suggests the following definition for fair value: the price at which an asset or liability could be exchanged in a current transaction between knowledgeable, unrelated willing parties. It notes that the price is an estimate in the absence of an actual exchange. The exposure draft emphasizes the use of market inputs in valuing an asset or liability. The specific market inputs mentioned include: quoted prices, interest rates, yield curve, credit data, etc. Fair value is, by definition, derived from a current transaction which happens in an active market with knowledgeable and unrelated parties. When fair value is not available due to the lack of an actual transaction, it is logical to use information from an active market. However, sometimes quoted prices might not represent the best estimate of fair value. The basis of the framework in the exposure draft centers on a fair value hierarchy. The hierarchy is suggested as a guide to determining what inputs to include in valuing an asset or liability at fair value. The hierarchy is broken down into three levels. Level One requires the use of quoted prices from an active market for identical assets or liabilities. To use this level, the entity must have immediate access to the market (could exchange in current condition). If more than one market is available, the exposure draft requires the use of the most advantageous market. Both the price and costs to do the transaction must be considered. Level Two requires the use of quoted prices for similar assets or liabilities in active markets. While in Level One an entity is not permitted to make any change

to the quoted price, an entity may make price adjustments, as necessary, in Level Two since the assets or liabilities are only similar, not identical. It is stated, however, that any adjustment must be objective. If the adjustment is not objective or there are no similar goods in the active market, an entity must measure the fair value based on Level Three. . This level requires the use of valuation techniques. The draft suggests the use of the market, income, and cost approach, unless the use of all three produces undue costs and effort. If that is the case, an entity is to use the approach that produces the best approximation of the fair value. Inputs used to determine the value should be external to the entity. The entity may only rely on internal information if the cost and effort to obtain external information is too high. A working draft has been established for the fair value exposure draft. The working draft was released for comment on October 21, 2005. One of the noticeable changes in the working draft compared to the exposure draft is the addition of two more levels in the fair value hierarchy. Level three has been adjusted to only include assets or liabilities that have observable inputs other than quoted prices. It is also explained that financial instruments must have an input that is observable over the entire term of the instrument. The addition of the additional levels helps to eliminate the ambiguity associated with the first exposure draft. Instruments that have inputs that are not directly observable, but have corroboration through other data, are considered level four. Level Five encompasses any remaining valuation that requires all entity inputs and no market inputs.

Approaches For Valuation

Income Approach

Cost Approach

Market Approach

Rental Method Land and building Method Comparable Sales Method Discounted Cash Flow Book Value Method Residue Method Technique Belting Theory Hypothetical Building Scheme Profit Method Hypothetical Plotting scheme Statutory Method

Market approach:- this approach takes into consideration the market value of all the tangible assets of the company to determine its value in theory, there are two different approaches to determine asset based valuation Replacement cost approach and liquidation value approach. Replacement cost approach:- this approach takes into account the amount of money that may be required to create a similar infrastructure(i.e. all the assets that the company being valued owns as on a particular point in time when valuation is exercise is undertaken. Liquidation value approach takes into account the money that can be generated by the company the sale of all its assets. In both the cases, it may however be noted that all the liabilities of the company are required to be deducted to determine the net value of the company, i.e, the value of the company for its equity shareholders or to arrive at the value per share.

Income approach :The income approach, sometimes called the income capitalization approach, is a method of estimating value based on money one expects to receive in the future. This method works best for standard income properties that are fully rented and have been producing income for some time. These are sometimes called stabilized income properties. The income approach may not be that reliable for owner-occupied real estate, because owners dont pay rent. Also, the income approach may be less reliable for vacant, unique, unusual or mixed-use properties. A reconstructed operating statement is a simple spreadsheet that lists the anticipated first year income and expenses for commercial real estate. It is a useful tool for evaluating income property. Market rent is the rental income that a property would most probably command in the open market. The best way to estimate market rent is to look at current rents paid for comparable space. A lease is a written document that transfers the rights to use and occupy real estate from the owner to a tenant for a specified period of time in exchange for rent. Commercial floor area is measured differently than residential floor area. Residential gross living area is normally calculated by measuring the

exterior dimensions of the house less non-livable areas such as garages and storage spaces.

DCF METHODOLOGY:- expresses the present value of the business as a function of its future cash earnings capacity, the methodology works on the premises that the value of a business is measured in terms of future cash flows, discounted to the present time at an appropriate discount rate. The methodology is able to capture the value of all the tangible and intangible assets of the company( those which are directly related to the possible future cash flows. The value of all the intangibles of a company such as brand, marketing and distribution network and goodwill get captured either in the form of higher sales or as higher profits of the company in comparison to its competitors who may not have as strong or similar brand or distribution network. It also takes into account the risk factor to which an enterprise can be exposed. The discount rate is based on the risk perception of the business and the expected rate of return, it also takes into account the value of the core assets of the company.

Cost approach :The cost approach is one of the three standard methods appraisers use to estimate value. The other two are the income approach and the sales comparison approach. The income approach is used mainly for commercial and residential income properties where value is strongly related to rents. Understanding the cost approach requires learning some new meanings for old words. Cost, price and value are good examples. Cost refers to construction and development costs, price refers to listing and selling prices, and value is always an estimate or opinion. The cost approach reflects market behavior because buyers and sellers relate value to cost. The economic principle of substitution holds that a well-informed buyer will not pay more for a property than the cost to buy a similar piece of land and construct a similar building. Buyers often do some kind of cost analysis when making the decision to buy or build. Developers usually do a cost analysis before they decide to begin a new project.

Fair valuation in DRF

Fair Value in DRF helps to estimate the actual worth of an asset in the market. The decision regarding the sale of an asset can be taken with the help of fair value. Average useful life of an asset can be obtained when fair value is known. Fair value supports in distinguishing the book value and market value. DRF is given an opportunity to decide the usage of ugaap and igaap. Based on the fair market value as both igaap and ugaap are used in calculations.

METHODOLOGY FOR VALUATION OF MOVEABLE ASSETS

Procedure for valuation of moveable assets

Step1 :- physical verification of assets and their working conditions with the help of expert evidence and ascertainment of remaining useful life of an assets based on scientist estimations.

Step2 :- Reconciling this verified assets with book records.

Step3 :- Categorizing of equipments based on their usage description, such as electrical equipments, furniture and fixtures, machinery and lab equipments.

Step4 :- Recording this all above information into excel sheets with the approximate year of purchase, and also considering whether this particular assets had been used or not.

Step5 :- Ascertainment of replacement cost per/unit based on companies valuation policy, which is being valued on a particular point in time when valuation is exercise is undertaken

Step6 :- useful life of an assets is decided based on company polices of useful life.

Step7 :- Fair value or value on life can be arrived using simple formula

Total replacement cost/per unit * Remaining useful life of an asset _______________________________________________________

Total no of useful life (company policy)

Step8 :- In summary average useful life of an assets can be ascertain , when total replacement cost is divided by replacement cost value at plan useful life.

ANALYSIS AND INTERPRETATION

HERE PLEASE INSERT WORKING SHEET ONLY FOR( REFRENCE PLEASE ) DELETE THIS PAPER I AM PROVIDING WOKING SHEETS IN ANOTHER FOLDER PLEASE TAKE PRINTS OF THOSE WORKING SHEETS AND ADD AFTER ABOVE PAPER

Sl

Group Machinery & Lab 1 Equipment 2 3 4 Electrical Equipment Office equipment Furniture & Fixtures Total of the above

Gross Bk 143,393,13 2 39,593,00 0 1,980,90 0 29,517,00 0 214,484,03 2

repl value gross

coverage

avg uesful life

balan life

101,611,900 2,600,000 26,000 90,78,8 19 104,237,900 45

70.90% 6.57% 13.66% 30.75%

8.86 10 67 3.46 7.43

T o ta l o f th e a b o v e

G r o s s B k 1 4 3 ,3 9 3 ,1 3 2 3 9 ,5 9 3 ,0 0 0 1 9 ,8 0 9 ,0 0 2 9 ,5 1 7 ,0 0 0 r e p l v a lu e g r o s s 1 0 1 , 6 1 2 ,6 0 0 ,0 0 0 2 6 ,0 0 0 9 0 ,7 8 ,8 1 9 c o v e r a g e 7 0 .9 0 % 6 .5 7 3 0 .7 5 % a v g u e s f u l li f e 8 . 8 6 1 0

b a la n li f e r e p v a lu e 2 0 , 8 ,6 6 ,6 6 7 4 ,4 6 7 1 5 ,6 9 ,2 8 3 f a i r v a lu e 2 0 , 1 5 3 , 3 0 5 8 ,6 6 ,6 6 7 4 ,4 6 7 1 5 ,6 9 ,2 8 3

Graphical representation of machinery and lab equipment valuation

160000000 140000000 120000000 100000000 80000000 60000000 40000000 20000000 0 Gross Bk repl value balan life fair value gross rep value Machinery & Lab Equipment

Interpretation:- machinery and lab equipment gross book value was 14,33,93,132/- Rs but when valuation exercise by company, its replacement value is 10,16,11,900/-Rs for the average useful life of 8.86 years . Usage of machinery and lab equipment is 70.90%, by observing the above summary the fair value or value on life is 2,01,53,305/-Rs

Graphical representation of Electrical equipment valuation

45,000,000.00 40,000,000.00 35,000,000.00 30,000,000.00 25,000,000.00 20,000,000.00 15,000,000.00 10,000,000.00 5,000,000.00 Group Gross Bk repl value gross balan life rep value fair value Series1 Series2 Series3 Series4 Series5 Series6 Series7 Series8 Series9

Interpretation:- electrical equipment gross book value or purchase value at the time of procurement was 3,95,93,000, but when valuation exercise by company its replacement value is 2,60,00,000 coverage of usage life 6.75% and average useful life is 10 years , when fair valuation methodology used , we arrived at fair value of 8,66,667 /- Rs for the remaining useful life of an asset.

Graphical representation of office equipment valuation

Office equipment 2,500,000

2,000,000

1,500,000 Office equipment 1,000,000

500,000

Gross Bk repl value gross balan life rep value fair value

Interpretation:- office equipment gross book value was 19,80,900 ,when valuation exercise its replacement value is 26,000 with an average coverage of 0.13667% and used life is 3.46 . when fair valuation methodology applies we arrived at a value of 4,467.

Graphical representation of furniture and fixtures valuation

Furniture & Fixtures 35,000,000 30,000,000 25,000,000 20,000,000 Furniture & Fixtures 15,000,000 10,000,000 5,000,000 Gross Bk repl value gross balan life rep value fair value

Interpretation :- the gross book of furniture and fixtures was 2,95,17,000 but valuation exercise the replacement value is 90,78,819 with a cove rage ratio of 30.755 and average used life of 7.43 , but fair valuation methodology is used we arrived at a fair value of 15,69,283.

Graphical representation of machinery and lab equipment valuation

160000000 140000000 120000000 100000000 80000000 60000000 40000000 20000000 0 Gross Bk repl value balan life fair value gross rep value Machinery & Lab Equipment

Interpretation:- machinery and lab equipment gross book value was 14,33,93,132/- Rs but when valuation exercise by company, its replacement value is 10,16,11,900/-Rs for the average useful life of 8.86 years . Usage of machinery and lab equipment is 70.90%, by

observing the above summary the fair value or value on life is 2,01,53,305/-Rs

Graphical representation of Electrical equipment valuation

45,000,000.00 40,000,000.00 35,000,000.00 30,000,000.00 25,000,000.00 20,000,000.00 15,000,000.00 10,000,000.00 5,000,000.00 Group Gross Bk repl value gross balan life rep value fair value Series1 Series2 Series3 Series4 Series5 Series6 Series7 Series8 Series9

Interpretation:- electrical equipment gross book value or purchase value at the time of procurement was 3,95,93,000, but when valuation exercise by company its replacement value is 2,60,00,000 coverage of usage life 6.75% and average useful life is 10 years ,

when fair valuation methodology used , we arrived at fair value of 8,66,667 /- Rs for the remaining useful life of an asset.

Graphical representation of office equipment valuation

Office equipment 2,500,000

2,000,000

1,500,000 Office equipment 1,000,000

500,000

Gross Bk repl value gross balan life rep value fair value

Interpretation:- office equipment gross book value was 19,80,900 ,when valuation exercise its replacement value is 26,000 with an average coverage of 0.13667% and used life is 3.46 . when fair valuation methodology applies we arrived at a value of 4,467.

Graphical representation of furniture and fixtures valuation

Furniture & Fixtures 35,000,000 30,000,000 25,000,000 20,000,000 Furniture & Fixtures 15,000,000 10,000,000 5,000,000 Gross Bk repl value gross balan life rep value fair value

Interpretation :- the gross book of furniture and fixtures was 2,95,17,000 but valuation exercise the replacement value is 90,78,819 with a cove rage ratio of 30.755 and average used life of 7.43 , but fair valuation methodology is used we arrived at a fair value of 15,69,283.

Comparision of market prices with identical assets from an active market

Tag runnin g no 9 1 6 5 3 9 6 5 1 MARKE T PRICES 315,000 1507500 67500 99000 4500 382500 67455 54000 80775 DRF FAIR PRICES 57143 1176471 54000 738462 2462 230769 44364 20000 55000

lab/dept CIL CIL/NMR CIL/X-RAY CIL/X-RAY RADIO BIOLOGY RADIO BIOLOGY HPCL HPCL HPCL

Description Polari Meter-DRF/ANAL/CIL/93/488 Gemini-200 GC/MS-LC Powder X-RD Freezer,REVCO,DRF/PHRM/RDIO/96/3266 Top Count,Packard,DRF/PHRM/RDIO/95/1671C Rotovapor- Buchi IKA-Stiress UV-Chamber

SUGGESTIONS

One of the limitations is mentioned as usage of quoted prices for estimation of fair values. This limitation can be covered in case DRF applies income approach where in EBDIT would be used to perform the evaluation.

DRF can apply discounted cash flow methodology of income approach to ascertain the actual fair values.

When fair value is not available due to lack actual transaction, it is logical to use information from an active market.

When it is using this option , it must have immediate access to the market to exchange its current condition in more then one market which is the The most advantageous market , for both the price and costs to be considered.

ANNEXURE

Shimadzu HPLC LC-6A Liquid Chromatograph Pump

This auction is for one used Shimadzu LC-6A Liquid Chromatograph, w/manual. Powers on successfully, otherwise untested. Cosmetically in good condition.
Shipping: Right now we only ship to US and Canadian addresses. We are happy to ship to a freight forwarder in the US or Canada for International buyers. US Continental shipping: DHL Ground for $28.50; Canada via DHL Air for $49.50.

Ad# 314094

Make: Shimadzu Model: LC-6A Price: LabAuction Age: Unknown Condition: Unknown Config: As Shown Weight: ~40 lbs Hits: 184 UPS Shipping Cost

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LabAuction Bid Information

Minimum Bid:

$100.00

LabX Time:

5:39:35 AM Eastern Time

Current Bid:

No Bid

Closes:

Fri, Feb 16 12:07 PM ET

Opening Bid:

$100.00

Closes In:

7 days, 6 hours

Shimadzu HPLC LC-6A Liquid Chromatograph Pump

Ad# 314094

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Contact Name: Amanda Wilmarth

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Rating:

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Location:

Madison, Wisconsin, USA Current Ads:

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Member Since: Sep 07, 2006

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RIGAKU

MINIFLEX

PORTABLE

XRD

w/
Ad# 307011
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The Rigaku Miniflex has shown its quality throughout industry as a very competitive alternative to a full sized XRD. It's compact size makes it an excellent choice for anyone with minimal space. It's light weight makes it a great tool for those who prefer to bring their analysis to the field, rather than ship test samples back from a remote site. Installation at any site is as simple as plugging the XRD and chiller into a standard 110V outlet and connecting the chiller hoses. The entire system could easily be transported, in an average passenger car, by two people.
This particular Miniflex also features a vertically mounted optics path. This is invaluable for anyone wishing to perform XRD analysis on loose powders. Data analysis is performed with a MDI Jade analysis package, including Search/Match capability, with a database for material characterization. See pictures of a test scan, performed at our facility, which was immediately identified as Quartz SiO2. This software package alone would cost over $13,000 to duplicate today. Support for this system is readily available from multiple service providers nationwide. All manuals will be included with the unit, as well as some spare parts. Special features

Make: Rigaku Model: MiniFlex Price: $22,000.00 Age: Recent Condition: Good Config: Complete Weight: Hits: 2563

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Vertical optics (new style) Cu anode x-ray tube (used) MDI Jade analysis software MDI Search/Match plug-in for Jade Searchable database including mineral, organic and inorganics Closed loop, air-cooled water chiller (very small)

The Miniflex is available for demonstration at our facility in Texas. Feel free to contact us with any questions.

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rigaku min used pvc shimadzu waters hp

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GC MS 5988/5890
HP 5988A GC/MS This unit has a 5890A GC.This unit was removed from a lab , and was fully functional when removed. Unit includes 5890 GC with HPIB (GPIB) card and cable with single injector. Cabinet with vacuum system with two Edwards vacuum pumps, and diff. Pumps and vacuum manifold system with cut off valves between the diff. pumps and the vacuum chambers.
Vacuum pump Edwards E2M2 Vacuum pump Edwards E2M18 Vacuum Diffusion Pump Edwards Diffstak 63 Vacuum Diffusion Pump Edwards Diffstak 160 This item is sold as is, no warranty, packing fee of $100.00 applies. Customer is responsible for all shipping costs. Payment is due within 7 days of auction close. Preferred payment methods for auction items are Paypal or money order. ONLY bidders who intend to complete the transaction should bid. Please be aware of shipping costs before bidding, as this item has to be shipped from Canada. Please call or email with any questions. Thank you!

Ad# 313819

Make: Hewlett Packard Model: 5988/5890 Price: LabAuction Age: Unknown Condition: Working Config: As Shown Weight: Hits: 496 UPS Shipping Cost

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LabAuction Bid Information

Minimum Bid:

$1,500.00

LabX Time:

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Current Bid:

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Closes:

Mon, Feb 26 4:00 PM ET

Opening Bid:

$1,500.00

Closes In:

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GC MS 5988/5890

Ad# 313819

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John Snow

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Rating:

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Location:

Ajax, Ontario, Canada

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Comparision of market prices with identical assets from an active market

Lab/dept

Tag running no

Description

MARKET PRICES

DRF FAIR PRICES

CIL

9 Polari Meter-DRF/ANAL/CIL/93/488

315,000

57143

CIL/NMR

1 Gemini-200

1507500

1176471

CIL/X-RAY

6 GC/MS-LC

67500

54000

CIL/X-RAY

5 Powder X-RD

990000

738462

RADIO BIOLOGY

3 Freezer,REVCO,DRF/PHRM/RDIO/96/3266

4500

2462

RADIO BIOLOGY

9 Top Count,Packard,DRF/PHRM/RDIO/95/1671C

382500

230769

HPCL

6 Rotovapor- Buchi

67455

44364

HPCL

5 IKA-Stiress

54000

20000

HPCL

1 UV-Chamber

80775

55000

 Graphical representation of market and DRF prices for identical assets.

9 8 7 6 5 4 3 2 1 0 500,000 1,000,0 1,500,0 2,000,0 2,500,0 3,000,0 00 00 00 00 00 MARKET PRICES DRF FAIR PRICES

Notation:- As from the above chart we found that, there is a hike in market prices for the identical assets as compared to DRF fair values ,this is because of usage of assets and based on remaining useful life of assets.

Comparision of market prices with identical assets from an active market

Lab/dept

Tag running no

Description

MARKET PRICES

DRF FAIR PRICES

CIL

9 Polari Meter-DRF/ANAL/CIL/93/488

315,000

57143

CIL/NMR

1 Gemini-200

1507500

1176471

CIL/X-RAY

6 GC/MS-LC

67500

54000

CIL/X-RAY

5 Powder X-RD

990000

738462

RADIO BIOLOGY

3 Freezer,REVCO,DRF/PHRM/RDIO/96/3266

4500

2462

RADIO BIOLOGY

9 Top Count,Packard,DRF/PHRM/RDIO/95/1671C

382500

230769

HPCL

6 Rotovapor- Buchi

67455

44364

HPCL

5 IKA-Stiress

54000

20000

HPCL

1 UV-Chamber

80775

55000

 Graphical representation of market and DRF prices for identical assets.

9 8 7 6 5 4 3 2 1 0 500,000 1,000,0 1,500,0 2,000,0 2,500,0 3,000,0 00 00 00 00 00 MARKET PRICES DRF FAIR PRICES

Notation:- As from the above chart we found that, there is a hike in market prices for the identical assets as compared to DRF fair values ,this is because of usage of assets and based on remaining useful life of assets.

BIBLIOGRAPHY

Assets and Liability management by Ravi Kumar. Financial Systems and Services by Prasanna Chandra. Quoted prices for identical assets from Labx.com. Literature on fair valuation down loaded from web sources. www.drreddys.com